Panama’s largest local bank, Banco del Istmo, is primed to become Central America’s leading financial institution. This is no small order in a region with more than 150 local banks operating among six countries and serving 33 million people. More than half of the region’s banks operate out of Panama, making Banco del Istmo’s home turf the most competitive and highly saturated financial sector in the area.

As Central America’s financial systems gain sophistication, the region’s bankers point to cross-border consolidation as the key to not only staying ahead but also, possibly, to staying afloat. As the markets integrate, financial institutions will increasingly operate across borders and only those banks prepared to compete internationally will survive.

Banco del Istmo is the Central American bank that is best assuming this role, having taken significant steps toward creating a platform for regional expansion.

Local Growth First
Istmo wisely fortified operations at home before pushing outward. Local consolidation was needed to assemble the necessary resources to face other Central American banks preparing for the fight. In June, Banco del Istmo merged with Panama’s third-largest bank, Pribanco, and increased assets to $3.7 billion from $2.3 billion. Aside from the financials, the merger represented an important consolidation in banking operations in the country’s fragmented banking system. Banco del Istmo absorbed Pribanco’s strong Panama City presence to broaden its reach nationally.

“The merger expanded Banco del Istmo’s banking practices through a complementary network. We were much stronger in the interior and in Colón, while Pribanco was principally a mortgage lender in the capital. Our clientele is now comprised of the best of the two banks,” says Banco del Istmo CEO, Alberto Vallarino. The bank now has 26 branches throughout Panama.

Banco del Istmo anticipates the merger’s final details will be completed by mid-2001. The consolidated institution will be called Primer Banco del Istmo. “Our goal now is to promote consumer banking. Clients are growing more wary, so we [must] compete not only with price but also [by offering] stability,” says Vallarino.

According to Fitch IBCA analyst Alissa Ide, who followed the merger closely, Primer Banco del Istmo is expected to control 18.6% of local loans and 23.7% of local deposits in Panama.

In addition to banking, Banco del Istmo operates in Panama’s insurance business through its subsidiary, Compañía de Seguros Chagres. Istmo now owns Pribanco’s insurance unit, Compañía Nacional de Seguros, which brings the bank’s share of the country’s $366 million insurance business to 6.2%.

Banco del Istmo has also moved into neighboring Costa Rica. Last year it acquired that country’s leading corporate lender, Banex, making it Costa Rica’s largest foreign-owned bank.

On the electronic frontier, Banco del Istmo is a leader as one of only two Panamanian banks to offer a transaction-based Internet site. Banco del Istmo’s portal,, consolidates Internet banking for Banex and the bank’s Panama operations and includes financial data, securities trading services, business-to-business and business-to-consumer operations. As the Internet gains momentum in Central America, online financial services will become increasingly important for banks in the region. Banco del Istmo’s head start should serve it well.

Acquisition Opportunities
The Nicaraguan and El Salvadorian markets present possible acquisition opportunities for Banco del Istmo, says Vallarino. Nicaraguan government regulators took over Banco Intercontinental this fall after the bank failed to meet minimum reserve requirements, and Nicaragua’s bank superintendency has suspended three other banks in the past five years.

Banco del Istmo faces competition from other Central American banks hoping to expand in the region. Banco Agrícola, El Salvador’s largest bank, has completed a process of local consolidation and shows an interest in becoming a regional leader.

Mauricio Samayoa, president of El Salvador’s second-largest bank, Banco Custcatlán, says he too wants to assume a greater regional presence. Cuscatlán presently operates in Costa Rica and Guatemala and hopes to launch operations in Nicaragua and Honduras. Of Cuscatlán’s $2.2 billion in assets, 25% originate from branches abroad.

Banco del Istmo’s next step may be listing on Latibex, Madrid’s Latin American exchange. Other Latin American banks such as Banco Francés, Banco Río de la Plata, and BBVA Bancomer trade on the exchange. Banco del Istmo hopes the move will increase international recognition for the bank’s regional ambitions. LF